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What is best option to rollover 401k after change of jobs

2,838 402 May 12, 2019 at 08:18 PM
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Current 401k is with Fidelity and has only about $35k
New employer's 401k also is with Fidelity

I'll probably park the money in some funds and do limited individual stock trades rarely.
What is best option

1) Rollover to new 401k -> Fidelity to Fidelity

2) Transfer to a IRA and while at it make use of some rollover bonus.
If so, Etrade and Ally seems to offer 200 bonus for $25k and up. Merill and TDAmeritrade seems to be giving $100

Any advantage in rolling over to new 401k versus going the IRA route? Also if going IRA, any gotcha in picking the one with max Bonus - Ally or eTrade?

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#2
Quote from stubbornboy
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Any advantage in rolling over to new 401k versus going the IRA route? Also if going IRA, any gotcha in picking the one with max Bonus - Ally or eTrade?
The best option is roll the 401k from previous employer over to a Roth IRA account. This way you eliminate the admin fees of the 401k, no tax liability in growth and withdraw later, no need to worry about the required minimum distributions in your retirement, with wide selection of funds to choose from, and the account is under your total control.

Rolling over to the new 401k means lose pretty much all things above except admin fees - your employers pays for that while you are employed.

Retirement account investing is long term game. I am not sure one-time bonus should be high priority here. I mainly look for brokers with funds I like that have the lowest expense ratio, easy process and good support. Back in April I did the rollover in two steps by rolling over 401k-> traditional IRA first, then will convert each portion of the balance from T. IRA into Roth IRA every year for the next 3-5 years or so to minimize my tax liability for the roth conversion.
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Last edited by teetee1 May 13, 2019 at 07:18 AM.
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#3
Definitely roll it over into an IRA at a brokerage. You will have access to virtually any and all mutual funds, ETFs, and individual stocks. Most 401k plans have a very limited selection of funds from which to choose.

Also think about fees and commissions. Is there an annual or inactivity fee? Depending on the brokerage, you may be limited to investing in their funds without a commission, so make sure you are happy with those funds' expense ratio and performance before applying.

I would recommend Vanguard which has a broad selection of mutual funds with ultra-low expense ratios. Vanguard also lets you trade most ETF's without a commission. No account fees as long as you receive your confirmations and statements digitally.

Another option is open an IRA at Fidelity. Fido mutual funds are very competitive with Vanguard. You can use the same online account to manage your IRA and 401k.

M1 Finance (m1finance.com) offers free stock and ETF trading with automated investing if that is something that interests you. I haven't tried it, but it is very enticing to move some money here.

Maybe E-Trade has changed since I've been there, but I wasn't super happy with the selection of mutual funds you can trade without commission. E-Trade charges a commission on all stock trades. Correct me if I'm wrong, but it looks like Ally only offers CD's inside an IRA. You can, of course, chase those bonuses and then transfer to another brokerage, but the process is not the easiest. Just some things to think about.
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#4
Quote from theST0RM
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Definitely roll it over into an IRA at a brokerage. You will have access to virtually any and all mutual funds, ETFs, and individual stocks. Most 401k plans have a very limited selection of funds from which to choose.

Also think about fees and commissions. Is there an annual or inactivity fee? Depending on the brokerage, you may be limited to investing in their funds without a commission, so make sure you are happy with those funds' expense ratio and performance before applying.

I would recommend Vanguard which has a broad selection of mutual funds with ultra-low expense ratios. Vanguard also lets you trade most ETF's without a commission. No account fees as long as you receive your confirmations and statements digitally.

Another option is open an IRA at Fidelity. Fido mutual funds are very competitive with Vanguard. You can use the same online account to manage your IRA and 401k.

M1 Finance (m1finance.com) offers free stock and ETF trading with automated investing if that is something that interests you. I haven't tried it, but it is very enticing to move some money here.

Maybe E-Trade has changed since I've been there, but I wasn't super happy with the selection of mutual funds you can trade without commission. E-Trade charges a commission on all stock trades. Correct me if I'm wrong, but it looks like Ally only offers CD's inside an IRA. You can, of course, chase those bonuses and then transfer to another brokerage, but the process is not the easiest. Just some things to think about.
Thanks. Looks like Ally has low fees for stock/ETF trades, but not many funds. Might be good only if I invest actively. eTrade seems to have gotten better based on reviews, but then I'm not sure how it compares to Vanguard/Fidelity though wrt funds.
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#5
Quote from theST0RM
:
Definitely roll it over into an IRA at a brokerage. You will have access to virtually any and all mutual funds, ETFs, and individual stocks. Most 401k plans have a very limited selection of funds from which to choose.

Also think about fees and commissions. Is there an annual or inactivity fee? Depending on the brokerage, you may be limited to investing in their funds without a commission, so make sure you are happy with those funds' expense ratio and performance before applying.

I would recommend Vanguard which has a broad selection of mutual funds with ultra-low expense ratios. Vanguard also lets you trade most ETF's without a commission. No account fees as long as you receive your confirmations and statements digitally.

Another option is open an IRA at Fidelity. Fido mutual funds are very competitive with Vanguard. You can use the same online account to manage your IRA and 401k.

M1 Finance (m1finance.com) offers free stock and ETF trading with automated investing if that is something that interests you. I haven't tried it, but it is very enticing to move some money here.

Maybe E-Trade has changed since I've been there, but I wasn't super happy with the selection of mutual funds you can trade without commission. E-Trade charges a commission on all stock trades. Correct me if I'm wrong, but it looks like Ally only offers CD's inside an IRA. You can, of course, chase those bonuses and then transfer to another brokerage, but the process is not the easiest. Just some things to think about.
Thanks. IRA or Roth IRA? if going Roth, I'd be taxed for the entire amount as soon as I convert right?
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Quote from stubbornboy
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Thanks. IRA or Roth IRA? if going Roth, I'd be taxed for the entire amount as soon as I convert right?
I would always go with roth now if you think the marginal income tax rate at the time when you withdraw will be higher than what it is right now.

My goal is to have lots of passive income to support my retirement so I convert whatever retirement account I can into Roth now so I don't get hit by RMDs and then get taxed when 1m in the account can become 500k on hand. Another reason is for accounting purpose. It's just easier for networth calculation when there is no tax liability associated with the accounts.
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hmm this is so complex. Looks like I may not be able to do a backdoor Roth (401k -> Traditional IRA -> Roth IRA) because we file taxes joint and my spouse has a Traditional IRA (which she opened this year when she took a new job and had to roll over 401k from former job).

Think the conversion traditional to Roth needs all of the traditional IRA(between spouse and I) zeroed out to keep things simple? Or maybe I am interpreting the rule incorrectly
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Quote from stubbornboy
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hmm this is so complex. Looks like I may not be able to do a backdoor Roth (401k -> Traditional IRA -> Roth IRA) because we file taxes joint and my spouse has a Traditional IRA (which she opened this year when she took a new job and had to roll over 401k from former job).

Think the conversion traditional to Roth needs all of the traditional IRA(between spouse and I) zeroed out to keep things simple? Or maybe I am interpreting the rule incorrectly
I would keep it simple and transfer it over to a traditional IRA. Maybe later, you can decide if you want to convert to a Roth. But just note that when you do conversion, the tax return will consider Total IRA balances (not just what's in the account).

What you describe isn't the backdoor Roth.
Backdoor Roth is when you contribute to a nondeductible IRA (when you make more than IRA limits and Roth IRA limits). You have to fill out a form 8606 to show its nondeductible. Then you convert that over to a Roth and this shows up on Form 8606 p.2. Since you would have a nondeductible contribution to your IRA, you have Basis in your rollover, so when you convert it over quickly enough, there is no tax due since the value of the contribution is close to amount you contributed.

If you current employer 401k plan has good options in the plan, I would suggest moving it there.

There are a few benefits of the 401k over IRAs that aren't truly financial or necessary, but good to have in case you need it.
1. ERISA protects 401k and Bankruptcy court protects IRA.
2. Also loan withdrawals from your 401k if your employer allows.
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#9
Quote from theST0RM
:
Definitely roll it over into an IRA at a brokerage. You will have access to virtually any and all mutual funds, ETFs, and individual stocks. Most 401k plans have a very limited selection of funds from which to choose.

Also think about fees and commissions. Is there an annual or inactivity fee? Depending on the brokerage, you may be limited to investing in their funds without a commission, so make sure you are happy with those funds' expense ratio and performance before applying.

I would recommend Vanguard which has a broad selection of mutual funds with ultra-low expense ratios. Vanguard also lets you trade most ETF's without a commission. No account fees as long as you receive your confirmations and statements digitally.

Another option is open an IRA at Fidelity. Fido mutual funds are very competitive with Vanguard. You can use the same online account to manage your IRA and 401k.

M1 Finance (m1finance.com) offers free stock and ETF trading with automated investing if that is something that interests you. I haven't tried it, but it is very enticing to move some money here.

Maybe E-Trade has changed since I've been there, but I wasn't super happy with the selection of mutual funds you can trade without commission. E-Trade charges a commission on all stock trades. Correct me if I'm wrong, but it looks like Ally only offers CD's inside an IRA. You can, of course, chase those bonuses and then transfer to another brokerage, but the process is not the easiest. Just some things to think about.
Transfer broker = fees
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#10
So what is driving everyone to tell OP to eat taxes on the rollover (to Roth) - the value of the 401k? e.g. if it were more, would you all still be chanting Roth?
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Quote from Dr. J
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So what is driving everyone to tell OP to eat taxes on the rollover (to Roth) - the value of the 401k? e.g. if it were more, would you all still be chanting Roth?
I've been holding my tongue on this. I calculated my elderly parents could receive an additional pre-tax income of around $15k over their Social Security per year without having to pay any income taxes which includes pensions, traditional IRA/401k withdrawals, part time jobs, etc. Roths do have a few advantages like no required minimum withdrawals at age 70.5 and penalty-free withdrawals of the principle. Personally, I leave my pre-tax retirement accounts as they are and make an annual Roth contribution, so I have a healthy balance of both. Obviously everyone's situation will be different.
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Quote from stubbornboy
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Thanks. IRA or Roth IRA? if going Roth, I'd be taxed for the entire amount as soon as I convert right?
Depends on what's important, if you live in a super high tax state like criminalfornia you'd want to keep putting money in pre-tax so your taxable gross goes down, between 3 accounts I put in 3k a month pretax and plan to retire and move to the United States in about 12 years - preferably one of the states with no state income tax (can't avoid fed) but if you live in a normal state then it's probably a wash.
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Quote from vairox
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Depends on what's important, if you live in a super high tax state like criminalfornia you'd want to keep putting money in pre-tax so your taxable gross goes down, between 3 accounts I put in 3k a month pretax and plan to retire and move to the United States in about 12 years - preferably one of the states with no state income tax (can't avoid fed) but if you live in a normal state then it's probably a wash.
Quote from theST0RM
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I've been holding my tongue on this. I calculated my elderly parents could receive an additional pre-tax income of around $15k over their Social Security per year without having to pay any income taxes which includes pensions, traditional IRA/401k withdrawals, part time jobs, etc. Roths do have a few advantages like no required minimum withdrawals at age 70.5 and penalty-free withdrawals of the principle. Personally, I leave my pre-tax retirement accounts as they are and make an annual Roth contribution, so I have a healthy balance of both. Obviously everyone's situation will be different.
If it makes any difference, bill is going through the motion in DC to increase minimum age from 70.5 to 72 for RMD.

As for converting, its up to OP. If he believes he will be in a higher bracket when retiring or taxes increase, then converting over is a great idea. If on the other hand OP thinks he might be in a lower bracket or taxes will remain lower, then rolling to a traditional IRA seems more preferable.

Food for though, if you are converting, and market is in a downturn, it might be a good "timing" as you will be paying tax on lower value. Also, like theSTORM mentioned, converting after retiring could be tax advantageous.

Personally, I'm in mindset one should have both traditional and Roth.

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#14
For those that do a "backdoor ira" (have to keep TIRA balances at $0 every year), can you still rollover a 401k to a TIRA? I think not .. right?
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